Chartering is an agreement by which the one party agrees to put a ship or a part of a ship, against a certain price, at the disposal of another party for the transport of the goods from one place to another.
But, What is the reason for Chartering a Ship?
The owner of a vessel has two possibilities concerning the use of his vessel:
- He can either use the vessel himself for the carriage of his own cargo. This is only done by huge companies, such as petroleum companies or steel industries, which supply their raw materials for their industries with their own vessels.
- He can charter the vessel, which means he puts it at the disposal of another party against a certain price – the freight. In this case, a contract between the two parties will be necessary.
In this article, I’ll explain the important points regarding Chartering. Such as Important terms, types of Chartering, Differences between each type.
Let’s get started…
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Chartering and Charter Parties
There are three important elements concerning chartering:
- The owner: He who puts his vessel or a part of the vessel at the disposal of another party for the carriage of cargo.
- The charterer: He who hires the vessel and has to pay for it.
- The freight: The amount of money that the charterer has to pay to the owner for the hiring of the vessel.
Charterparties are contracts of affreightment under which the shipowner, in return for a sum of money called the freight or charter hire agrees to carry goods in bulk by sea or provide the services of a vessel for the purposes of such carriage. There are no international conventions governing charter parties that are a form of contract and which are subject to the usual requirements of contract law.
Types of Charters
Organizations like the U.K. Chamber of Shipping and the Baltic International Maritime Conference (BIMCO) in Copenhagen have played a significant role in evolving internationally accepted charter parties. Thus charter parties could vary from place to place and also from one commodity to another. However there are three types of charters,
- Bare Boat Charter
- Voyage Charter
- Time Charter
This is a type of contract under which the owner provides the services of one or more vessels to the charterer for a period of time in return for charter hire. The charterer mans and equips the vessel and assumes full responsibility for its navigation, management, and operation. For all practical purposes, he acts as the owner of the vessel during the period of the charter but without undertaking the financial commitments of ownership. Sometimes bareboat charter serves as a hire/purchase contract i.e. contract for the purchase of a vessel on an installment basis. Under such a contract, the owner/seller retains formal ownership and thereby security In the vessel until the full purchase price is paid.
The bareboat charter party commonly used in India is the standard Barecon charter party. The important features are given below:
- Description of the vessel, such as size, speed, fuel consumption, loading capacity, etc. on which its performance will depend.
- Survey to be carried out on delivery and re-delivery.
- Inventories of stores, to be taken on delivery and re-delivery.
- The charter period usually a provision is included giving the charterer the option of extending the validity of the charter by a specified period.
- Rate of charter hire and mode of payment. This is usually computed on the deadweight tonnage of the vessel and is payable every month in advance.
Maintenance and operation during the period of the charter. The vessel has to be at the disposal and under the complete control of the charterer who will be responsible for the supply of crew, officers, stores provisions, bunkers, etc., and for all other items of operational costs including insurance.
This is a contract under which the owner undertakes to perform a voyage or series of voyages for the carriage of specified goods between named ports or within certain ranges of loading and discharging ports, with a vessel which is equipped and manned by him and for the navigation and management of which he remains responsible throughout the performance of the contract. Voyage chartering is usually resorted to when the movement of a shipload of cargo from one point to another is required.
The charterer, who has to receive and deliver the cargo, also assumes responsibility for delays in the loading and discharging of the cargo under the rules relating to laytime and demurrage. The hire paid by the charterer is actually the freight on the cargo carried and is directly proportionate to the volume of the cargo. The weight of the cargo to be carried is specified and if the charterer fails to deliver the contracted quantity, the owner may claim dead freight on the quantity short delivered.
The clauses in the voyage charter party usually relate to the description of the vessel (name, flag, size, cargo capacity, etc.), description of cargo (nature of the commodity and quantity), rate of freight and mode of payment, ports of loading and discharge, rates of loading and discharge, demurrage and despatch terms and other usual terms relating to the responsibilities of owners/charterers in regard to damage to cargo/ship, etc.
Time chartering is usually resorted to when the charterer desires to operate a vessel for a period of time without undertaking either the financial commitments of ownership or responsibilities of navigation and management of the vessel. While under voyage charter, the owner undertakes to provide a vessel for the carriage of specified goods on one or several voyages between named ports, under the time charter the owner undertakes to place the vessel at the disposal of the charterer for a period of time during which the charterer would be free to employ the vessel on his own account.
The charterer takes a substantial part in the operation of the vessel and becomes liable for the costs which are directly incidental to the voyages on which he employs the vessel, such as bunkers, port charges, loading and unloading charges, etc., while the owner meets the operational costs such as wages, provisions, stores, insurance, repairs, survey and also other fixed costs like depreciation, interest charges, etc.
There are two types of time charter:
- Period time charter: by which the vessel is chartered for a determined period of time.
- Trip time charter: by which the vessel is chartered only for the period necessary to accomplish a complete voyage.
Time Charter vs Voyage Charter
|Time Charter||Voyage Charter|
|The owner undertakes to place the vessel at the disposal of the charterer for a period of time during which the charterer would be free to employ the vessel on his own account||The owner undertakes to provide a vessel for the carriage of specified goods on one or several voyages between named ports|
|the volume of cargo has no relation to the charter hire, which is fixed on the basis of the carrying capacity (deadweight capacity) of the vessel and is directly proportionate to the period of hire||freight is paid on the cargo carried and is directly proportionate to the volume of the cargo|
|loss of time is normally on the charterer’s account but part of the risk is of loss of time is re-allocated to the owner by the so-called off-hire clauses. These clauses provide that time charterer shall not be required to pay hire for such time as is caused by break down of machinery or repairs or other factors attributable to the owner||the risk of loss of time (due to detention of ship in ports, etc.) is in principle borne by the shipowner but part of the risk of delay at loading and discharging ports is transferred to the charterer through the provisions regarding laytime and demurrage|
The charter party is only a document giving evidence of the rental of a ship or a part of the ship; the charter party thus does not represent the goods. The goods are represented by the bill of lading and as a consequence for each transport, there should be a charter party and a bill of lading. Indeed, in tramping, where there are usually only full cargoes, there is a charter party and a bill of lading. However, in liner shipping there usually is only a bill of lading, which will also function as a charter party.
According to the contract, both charterer and owner have their own responsibilities, with respect to the fixed cost and the variable costs in the use of the vessel.
Each charter party has its own characteristics. For example with a voyage charter, the “lay days”, the “demurrage” and the “lay/can” are of huge importance; while with a time charter the parameters of the vessel, in terms of speed and fuel consumption, are very important.